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FCC Court-Loss Could Quash TV Broadcast Consolidation

(Bloomberg) -- Television broadcast stocks are lower today on concern that a potential FCC loss in an ownership-limit case could tie up future deals or stop them in their tracks.

D.C. Circuit appeals court judges grilled the FCC today about an ownership rule change that’s needed for Sinclair to acquire Tribune Media. The national holdings limit rests at 39%, but that rule -- the UHF discount -- lets some companies count only part of their audience, skirting the threshold.

"I’ve been to a lot of FCC arguments and this one was among the worst I’ve seen for the agency" Bloomberg Intelligence litigation analyst Matthew Schettenhelm said by phone this afternoon. "It’s not a sure thing but I would be very surprised if the FCC prevails."

Schettenhelm predicts judges will rule against the UHF discount, which will not only complicate the proposed Sinclair-Tribune deal, but also squeeze future M&A by leaving less room for broadcasters to buy more stations.

"Without the discount there is a lot less room for acquisitions to occur because you have a bunch of companies that are pretty close to that 39% level," Schettenhelm said. "As long as that cap remains in place, the companies don’t have a lot of room to grow."

The court should decide before the end of September whether the FCC properly enforced the UHF discount. Sinclair will likely race to close the deal before the court rules, Schettenhelm said.